Vishay Intertechnology's (NYSE:VSH) Q1 Sales Top Estimates But Quarterly Guidance Underwhelms

Semiconductor manufacturer Vishay Intertechnology (NYSE:VSH) reported Q1 CY2024 results beating Wall Street analysts' expectations, with revenue down 14.3% year on year to $746.3 million. On the other hand, next quarter's revenue guidance of $750 million was less impressive, coming in 1.3% below analysts' estimates. It made a GAAP profit of $0.22 per share, down from its profit of $0.79 per share in the same quarter last year.

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“As expected, first quarter revenue declined 5% sequentially primarily due to ongoing semiconductor inventory digestion and lingering macro-economic uncertainties, particularly in Asia and Europe. Passive components revenue is stable to growing in Automotive with stronger growth in Aerospace/Defense. Gross margin for the quarter included a 74-basis point negative impact from the addition of Newport,” said Joel Smejkal, President and Chief Executive Officer.

Named after the founder's ancestral village in present-day Lithuania, Vishay Intertechnology (NYSE:VSH) manufactures simple chips and electronic components that are building blocks of virtually all types of electronic devices.

Analog Semiconductors

Demand for analog chips is generally linked to the overall level of economic growth, as analog chips serve as the building blocks of most electronic goods and equipment. Unlike digital chip designers, analog chip makers tend to produce the majority of their own chips, as analog chip production does not require expensive leading edge nodes. Less dependent on major secular growth drivers, analog product cycles are much longer, often 5-7 years.

Sales Growth

Vishay Intertechnology's revenue growth over the last three years has been unremarkable, averaging 8.5% annually. This quarter, its revenue declined from $871 million in the same quarter last year to $746.3 million. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Even though Vishay Intertechnology surpassed analysts' revenue estimates, this was a slow quarter for the company as its revenue dropped 14.3% year on year. This could mean that the current downcycle is deepening.

Vishay Intertechnology's revenue growth has decelerated over the last three quarters and its management team projects revenue to fall next quarter. As such, the company is guiding for a 15.9% year-on-year revenue decline while analysts are expecting a 4.3% drop over the next 12 months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Vishay Intertechnology's DIO came in at 105, which is 16 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.

Key Takeaways from Vishay Intertechnology's Q1 Results

It was encouraging to see Vishay Intertechnology top analysts' revenue and EPS expectations this quarter. On the other hand, its revenue guidance for next quarter missed, and the company echoed the broader semiconductor industry's sentiment surrounding inventory reduction. Like its peers, however, it expects customer inventories to correct in the back half of the year. Overall, this was a mediocre quarter for Vishay Intertechnology. The stock is flat after reporting and currently trades at $22.97 per share.

So should you invest in Vishay Intertechnology right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.